Set-Off Clause
Definition of 'Set-Off Clause'A legal clause that gives a lender the authority to seize a debtor's deposits when they default on a loan. A set-off clause can also refer to a settlement of mutual debt between a creditor and a debtor through offsetting transaction claims. This allows creditors to collect a greater amount than they usually could under bankruptcy proceedings. |
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Investopedia explains 'Set-Off Clause'If a debtor is unable to meet an obligation to his or her bank, the bank can seize the customer's current deposit. Set-off provisions are not limited to loans between banks and their customers, but are also widely used in other industries, such as construction.The Truth in Lending Act prohibits set-off clauses from applying to credit card transactions; this protects consumers who decline to pay for defective merchandise. |
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